The ATO has recently been in the news after distributing press releases indicating their areas of concern and focus for the 2018 tax year. Unlike previous years, these areas are likely to impact many taxpayers as they concern items claimed by the majority of taxpayers in their annual returns. Therefore care and attention needs to be taken to these ATO warnings to ensure you avoid ATO scrutiny.
The first area being targeted is laundry and uniform deductions. Most people are aware of the deduction of $150 for laundry expenses that can be claimed without any receipts. However the ATO is concerned this is being claimed by taxpayers who do not wear a uniform or protective clothing.
As a guide to taxpayers the ATO suggested it will allow claims based on 50 cents per wash (if the uniform/protective clothing is washed with other clothes) or $1 per wash (if the clothes are washed by themselves). So in effect a taxpayer would need to wash their clothes separately 3 times a week to get to the standard $150 deduction.
The other concern the ATO has in this area is taxpayers claiming for items that are not legitimate uniform expenses. The ATO has stressed that only taxpayers wearing a compulsory work uniform with a logo or protective clothing or legitimate protective clothing can claim uniform expenses. Many taxpayers have been caught making claims for clothes such as corporate suits or clothing that is generic in nature.
It also does not matter if the clothing is required by your employer (i.e. outfit for a presentation or event) – if the item is generic and could be worn privately then it is not claimable. This can be seen in the example of media performers who are required to provide their own clothes to wear on screen. Even in this case, the clothing claim is not deductible according to the ATO even though the taxpayer may be forced to spend thousands of dollars per year.
The second area under attack from the ATO is motor vehicle deductions, which make sense given these claims produce the biggest tax impacts. The common deduction is for 5000 business kilometres as no logbook is required to be maintained for this claim. However according to the ATO, many taxpayers make this claim even if they don’t do any work related travel. It is important to note that in most cases trips to and from work will not be deemed a business trip. The ATO will be looking closely at those taxpayers making such claims and verifying that there is legitimate work related travel. So taxpayers making this claim should ensure they have a reasonable basis and explanation for the claim and that their employers will substantiate that they are required to use their car for work related travel.
The final area the ATO is scrutinising is Airbnb operators. The ATO is concerned that these taxpayers may be not declaring income received from renting out their property or may be incorrectly claiming the expenses. Rental expenses can only be claimed for the periods a property was available to rent and can only be claimed for a proportion if only part of the property is rented out. Lastly Airbnb operators should be aware that by renting out their home they will be partially losing the capital gains tax exemption that applies normally where you sell your home.
If you have concerns about your annual personal tax return, please do not hesitate to contact us.